Rising Fiscal Challenges in the Pacific in 2014 - ADB

WELLINGTON, NEW ZEALAND – Fiscal pressures are expected to increase in the Pacific in 2014, according to the latest issue of the Asian Development Bank’s (ADB) Pacific Economic Monitor, launched today at the offices of the New Zealand Aid Programme.

Public spending for post-cyclone recovery in Samoa is likely to slow progress towards fiscal consolidation and drive up debt levels. In Fiji, rising capital expenditures by the government and anticipated election-related spending may challenge efforts to keep fiscal deficit in check.

Timor-Leste’s fiscal surplus is expected to diminish significantly due to declining petroleum revenues and continued high levels of government expenditure. Deficit-financed fiscal stimulus is expected to continue in Papua New Guinea (PNG) in an effort to counter the effects of a slowdown in economic growth. However, ongoing problems with the quality of expenditure and timely implementation of projects due to capacity constraints will likely to persist.

In the north Pacific, the Federated States of Micronesia and Republic of Marshall Islands continue to struggle in their efforts to accumulate trust funds that will enable them to maintain government expenditure beyond 2023, when annual transfers from the United States under the Compacts of Free Association are set to expire.

“While there is some impetus to spend for growth in the region, it remains important to proceed with public financial management and structural reforms to build economic resilience” said Xianbin Yao, Director General of the ADB’s Pacific Department. “The looming impacts of climate change make resilience even more crucial, with added focus on adaptation and disaster risk management.”

Revenue collections have declined in the region’s large resource exporters, but remained strong in the smaller Pacific economies in 2013. Lower commodity prices are weakening revenue collections in PNG. In Timor-Leste, offshore petroleum production appears to have peaked. Falling log exports have decreased revenues from timber export duties in the Solomon Islands. Revenue declines, along with limits in government capacity to implement capital projects, have contributed to delays in budget execution and slowed growth in these economies.

In contrast, revenues are exceeding budget targets for the second consecutive year in Kiribati, the Republic of the Marshall Islands, Nauru, and Tuvalu, mostly due to increased fishing license fees. Tax collections in the Cook Islands, Fiji, and Vanuatu are also higher than expected due to higher tourism arrivals and other factors.

The policy briefs in this issue focus on the economics and financing of climate change in the Pacific. The first brief summarizes estimates and findings from The Economics of Climate Change in the Pacific. The next brief examines impacts of climate change on agriculture in the Pacific in greater detail. Both briefs weigh policy options for facilitating climate change adaptation and mitigation in the region.

An external contribution from the World Bank profiles the Pacific Catastrophe Risk Assessment and Financing Initiative. The fourth brief discusses ways to increase public resources available for climate change adaptation and mitigation through mainstreaming in public financial management systems.

The Pacific Economic Monitor is a tri-annual review of economic developments in ADB’s 14 developing member countries in the Pacific. Each issue includes policy briefs on a subject of current importance to the region. Contributions from outside authors and institutions are encouraged.

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